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Falling gas prices and improving economics will persuade more Americans to flock to car dealerships in 2015, so spare a thought for Europeans as the market here stagnates and gloom returns.

For Europe, 2014 was the first positive year for the car market since the Great Recession struck in 2008, and sales rebounded a bit from 20 year lows. In 2007 sales had reached up to 15.6 million before sliding down to 11.5 million in 2013. The rally in 2014 was supposed to be the start of something big, but it was nipped in the bud by a combination of economic and political factors.

To raise the tone in Europe a little, perhaps there will be exciting breakthrough developments in 2015 with new, revolutionary ideas coming to the fore? Will it be car sharing, connectivity, autonomous driving, or battery power? Well, car sharing is felt to be a dead-end by many. Sure, car internet connectivity is on the increase, while autonomous driving might make some progress but that’s a long way from every-day reality. Battery power remains on the back burner, pushed back again by falling oil prices.

So more of the same for Europe, with too many manufacturers making too many cars fighting like ferrets in a sack for every last sale with discounts through the roof and profits accruing on a good day. On the positive side, there will be many high quality new cars appearing in 2015, including the new Audi Q7 SUV, the BMW 7 series flagship and the little Opel-Vauxhall Karl from GM Europe.

Europe’s economy generally refuses to spark back into healthy growth mode. Lingering fears the Euro currency zone might still yet break apart haven’t done consumer confidence any favors, while political aggravation to the East, as Russian aggression spooks investors and politicians, is an additional worry made concrete by the cost of economic sanctions. These sanctions are causing major damage to the Russian economy, but Germany, Europe’s biggest, is hurting too.

Stumble

According to the government sponsored Organization for Economic Cooperation and Development, Europe’s growth in 2014 will stumble ahead by 0.8 percent, and rise a bit in 2015 by 1.1 percent. Contrast this with U.S. expectations of 2.2 percent growth in 2014 accelerating to 3.1 percent in 2015.

Unemployment in the E.U.’s 18-nation core eurozone remained at a horrendous 11.5 percent of the working population in October for the third month in a row. The number of jobless people was 18.39 million.

Renault-Nissan CEO Carlos Ghosn expects European car sales growth of between one and two percent in 2015.

Forecaster LMC Automotive expects growth in Western Europe to rise a bit quicker than Ghosn’s estimate by 2.8 percent to 12.45 million, after spurting by 4.8 percent in 2014. Western Europe includes all the big markets like Germany, France, Italy, Spain and Britain.

“From a few months ago, the economic outlook for Western Europe is now weaker, though a gradual pickup in GDP growth is still assumed over the next few years. An improving economy should continue to support the recovery of the region’s car market, although we forecast a slower pace of growth for 2015 versus 2014,” LMC Automotive said.

Few signs of life

Investment bank Morgan Stanley doesn’t like what it sees.

“There are few signs of life in Europe,” said Morgan Stanley analyst Harald Hendrikse in a report.

“With the VDA (German vehicle makers association) forecasting just one percent growth in Germany in 2015 (Germany is 25 percent of Europe) we reiterate once again that we do not expect significant auto sales recovery in Europe until employment picks up. QE hopes (quantitative easing-printing of money by Europe’s Central Bank) may raise share prices – but they do not support consumer spending,” Hendrikse said.

“We continue to present Europe as a 2-speed economy, with a Northern European economy that has had a reasonable economic upturn and where unemployment levels and auto sales have normalized from the 2009-2010 crisis, and a Southern European economy mired in recession, with record-high unemployment and trough car sales. Until unemployment falls in Southern Europe we see no significant auto demand recovery,” Morgan Stanley said.

David Bailey, Professor of Industrial Strategy at Britain’s Aston Business School, is a bit more optimistic in terms of sales numbers, but his overall assessment sounds distinctly downbeat.

“The recovery in the European auto market is mainly fueled by catch-up effects in the peripheral crisis countries, and big fault lines remain in the broader Eurozone. Because of this, the market is still weak and remains vulnerable to another economic setback,” Bailey said.

“OK, Europe’s car market has now grown for 14 straight months. But after a six-year slump, it remains well short of its peak from before the financial crisis, and the gloomy economic outlook is likely to hold back demand in the months ahead.”

Cut losses

“So, yes sales growth next year could slow to three to 3.5 percent. That would still help the ailing mass middle market which has lost so much money in recent years. A combination of a modest market upturn and capacity reductions could see the mass firms cut losses further or even make modest profits. Quite how long that continues, though, is another matter,” Bailey said.

John Wormald, analyst with British automotive consultancy Autopolis, also reckons it will be stagnation next year for sales, and isn’t optimistic about progress in new technology either.

“I don’t see a big revival of the market in Europe. It’s in the doldrums economically, and Germany seems cautious too as the economy weakens. Everybody will be fighting like crazy for sales as they always do. You might have thought that the fall in the oil price might have meant some stimulation, but there’s not much sign of that,” Wormald said.

On Friday, the price of oil was slipping towards $62 a barrel, its lowest since July 2009. This has stimulated sales of bigger cars and SUVs in the U.S., but the price of gasoline in Europe at the pump is much higher than in the U.S. thanks to taxes which can reach to over 70 percent. This means that any reduction in the price of the commodity itself is a smaller percentage and doesn’t spur as much excitement when it happens.

Wormald isn’t too impressed with the prospects of car sharing, although it might have impact at the margins.

“Connectivity, it’s hard to see what it really brings, some elements of avoiding traffic, some of these things are quite useful. Collision avoidance is welcome but won’t change the market. Autonomous driving is an interesting idea but still quite a long way off. Battery cars are going nowhere with their cost and inconvenience,” Wormald said.

Yen threat

One more dark cloud lurking on the horizon hasn’t been mentioned so far; the threat from Japanese manufacturers spurred on by a price advantage from a weakening yen. The yen has fallen almost nine percent against the euro in the last couple of months, and that could help raise Japanese market share in Western Europe, standing at around 12-1/2 percent. But this is one area where Americans might be on the back foot compared with Europe. The yen has fallen almost 20 percent against the dollar since the summer, and the Japanese have 40 percent of the U.S. market. Cue big market share gains for the Japanese?

Neil Winton, European columnist for Autos Insider, is based in Sussex, England. E-mail him at neil.winton@btinternet.com

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